Checks and balances between the ESCB and the public authorities – (the political relations of the ESCB)

Chapter 3: Introduction to Cluster I
The ESCB, consisting of the ECB and the national central banks of the Member States, has been inserted, as a new institution sui generis, among the existing Community institutions.[1] We note there was no attempt to amend or change the existing institutions to the new EMU environment, e.g. there was no attempt to create an independent ‘gouvernement économique’ (an idea alluded to in the Werner Report), which would have taken away responsibilities assumed by the Ecofin Council and could have led to a reduced involvement of national parliaments, as Member States were reluctant to hand economic powers to the Community. [2] The relations of the ESCB with these other institutions will develop over time, but they will always have to be based on the Protocol on the Statute of the European System of Central Banks and of the European Central Bank and a number of relevant EC Treaty articles.[3] In this and the following two chapters we will select and study those articles of the Protocol and of the Treaty, which constitute the framework for the ESCB’s relations with the other branches of government.

First we will take back a few steps and ask ourselves a few seemingly elementary questions, such as ‘what is the basic Community structure’ and ‘what makes the ESCB different from the existing Community institutions’? Their treatment will constitute a useful general background for chapter 4, where we reconstitute the genesis of the wording of the most important articles governing the external relations of the ESCB. Because of the relative importance of the concepts of independence and accountability for the System’s external checks and balances we pay some attention to them as well by referring to the existing literature on these topics. We do not develop new frameworks, as we focus on the concept of checks and balances, of which they constitute a part, though a familiar part. Part of our contribution will be that we do not look at them as antitheses, but as somehow complementary in terms of checks and balances. In chapter 4 and following reference will be made to US Federal Reserve System, i.e. where this might help us understand, and assess, better the solutions found for the ESCB.

Basic Community structure
The basic Community structure has developed out of the structure of the European Coal and Steel Community (ECSC), established in 1951 on the basis of the ideas of Jean Monnet.[4] The ECSC was managed by the High Authority, which had executive, but also regulatory powers. However, important decisions needed political backing in the form of approval by a Council of Ministers.[5] A Court of Justice was established to ensure lawful application and interpretation of the Treaty (and the regulations). An Assembly with representatives of the Member States was established (which met once a year) with consultative powers. The structure of the European Economic Community and Euratom, each established in 1957 by a Treaty of Rome, resembled this institutional design: a Council of Ministers which decides, but which can only do so on the basis of a proposal or recommendation of the Commission.[6] The Commission has the important right of initiative and forms the executive branch of the Community structure. The roles of the Court of Justice and the Assembly [7] were the same as under the ECSC.[8] The Single European Act (1986) introduced some important changes: the Assembly was renamed into European Parliament and most decisions in the area of the internal market could as of then be taken by a qualified majority in the Council and in co-operation with the European Parliament (instead of requiring unanimity among the ministers and only consultation of the Assembly).[9] Read more

Checks and balances between the ECB and the NCBs (the relations within the System)

Chapter 6: Introduction to Cluster II
In this cluster we focus our attention on the issue of checks and balances within the System. At an early stage major players expressed their preference for a federally construed central bank system; cf. Werner Report of 1971; Balladur’s Memorandum of December 1987; Stoltenberg’s reaction to Genscher’s memorandum of February 1988; Pöhl’s contribution to the Delors Report and the Delors Report itself.

The Werner Report mentions that ‘the constitution of the Community system for the central banks could be based on organisms of the type of the Federal Reserve System operating in the United States.’ Stoltenberg stressed the need for an ‘ausgewogenes Verhältnis von zentralen und föderativen Elementen bei der Willensbildung.’ Pöhl advocated a federal structure of the central bank system, which ‘would correspond best to the existing state of national sovereignty and would additionally strengthen the independence of the central bank.’ The Delors Report (par. 32) favoured ‘[a] federative structure, since this would correspond best to the political diversity of the Community.’

It is not surprising that the federal character of the new European central bank was relatively undisputed. Apparently, a centralized structure with no regional elements, i.e. consisting only of an ECB, was seen as an unacceptable risk to those Member States with a tradition of independent central banks and price stability. There would be no guarantee that such institution would not be taken over by politically appointed board members, whereas in a federal European central bank system power would at least partially rest with the governors of the NCBs.

The issue of a federative structure raises the question of the relative roles of the centre and the existing NCBs and the division of labour between them. A major element in this respect has been the conviction, especially expressed from the German side, that monetary should be completely centralized, though the decision-making centre should be composed of persons both from the centre and the regions, thus upholding the federal character. This relates in particular to the issue of the relative roles of the Executive Board and the governors in the decision-making process, which is dealt with in cluster III. Monetary policy making being centralized still leaves undecided the division of labour between the centre and the regions in the area of monetary policy operations, the focus of this chapter.

The division of labour in the operational area relates to mundane questions such as who issues and distributes banknotes, to what extent are NCBs free to conduct non-System functions, what would the ECB’s balance sheet consist of, would it own foreign reserves and would it be allowed to deal directly with banks – many of these issues relating to the ‘standing of the centre’. The division of labour issue played against the following background, best explained by confronting the German and French views as they came to the fore in especially the Committee of Governors meetings during the drafting of the ESCB Statute. Read more

8.1 Introduction
This cluster has dealt with the articles determining the System’s operational functions and the division of labour between the ECB and the NCBs. There might be some tension between the ECB and the NCBs as regards this division of labour. It would increase the ECB’s position considerably, if it were conducting large part of the System’s operations with the banks and in the markets. A complete centralization (in all areas, e.g., open market operations, domestic facilities, foreign exchange operations, payment services, banknote issuance) would be unlikely, as this would be tantamount to merging all balance sheets, thus ending the federal character of the System. Complete decentralization, on the other hand, would not seem to be incompatible with a federal central bank system. Complete decentralization allows for concentration of activities with one of the central banks. Mixed systems are possible too. The centre could act as one of the central banks, offering all central bank services or conducting only a few types of transactions. To understand the way the Statute has been drafted we need to know what the drafters were aiming for when designing the Statute.

Some of the contours of the system though date from before the Delors Committee, because Germany had indicated (and France had supported this)[1] that the system should be federal, i.e. with a clear role for the existing NCBs. Taking the Bundesbank as an example, NCBs could be expected to participate in the highest decision-making body and to have local operational functions. The Delors Committee did not go into details as regards the internal division of labour – this was not the core of their report. Nonetheless, already at this stage the Delors Committee agreed on pooling of reserves at the centre – some had in mind the final stage, others (among whom Delors and the French central bank) already the intermediate stage.

The Committee of Governors concentrated on the final stage: they agreed to pool a substantial part of the reserves and to make the management of the remaining reserves subject to central guidelines. Pooling would create a pool of directly available foreign reserve assets, lending credibility to the System’s exchange rate policy, and indirectly contributing to creating a ‘strong’ centre. A strong centre was considered desirable, because the System would probably have to operate – at least in its formative years – in a difficult environment, in a political sense. While the governors clearly had in mind that monetary policy would be implemented using the NCBs and that the System itself should decide on the division of labour within the System, they could not agree on the degree of decentralization (i.e. strong or very strong) and neither on which body should ultimately have the final say as regards the actual division of labour (the Executive Board or the Governing Council). Most of the governors wanted the Governing Council to decide, a small minority (mainly the Bundesbank) favored the Executive Board. Behind this was the fear that NCBs could undermine the singleness of monetary policy. The governors did agree though that in order to ensure the singleness of policy the Governing Council should be able to adopt guidelines, upon which the Executive Board could base instructions to NCBs, which NCBs were required to obey (see Art. 12.1, first and second paragraph and Art. 14.3).

The IGC quickly found a compromise, choosing for the strong option (and not the very strong option) and placing the decision in the hands of the Governing Council (and not the Executive Board). The IGC did not express a specific opinion on the desired degree of centralization or decentralization of the System’s operations. The IGC devoted some time to the topic of banknote issuance, basically to accommodate peculiarities of a few countries (relating to the issuing of banknotes by a few private banks and to the issuance of coins). Overall, the governors made a considerable mark on the final design of the System. Read more

Shared problems require shared action. The world economy and deepening global risks bind us together, but we lack the collective global agency required to address them. A sustainable global future will be impossible without a fundamental shift from the dominant national mythos to a global worldview, and the concomitant creation of institutions with transformative political agency. A world political party would be well-suited to bring about such a shift. Although such a party will not materialize overnight, it can emerge from the chrysalis of activism and experimentation already forming on the world stage.
The transnational Democracy in Europe Movement 2025 (DiEM25) is a compelling experiment in this vein, providing useful lessons for a world political party proper. Although the challenges to forming a transformative world party are profound, the risks of inaction are grave – and the rewards of success momentous.

Party Time
We now understand how small our planet has become. The local and global have become profoundly intertwined as our daily activities depend on the workings of the world economy. Common risks, like ecological crises and weapons of mass destruction, tie all our fates together.

Despite such interconnectedness, people’s everyday experiences still differ greatly. For example, consider the contrasts between a day in the life of a high school teacher in Finland, a textile worker in China, a CEO of a multinational corporation in Brazil, and a janitor in Kenya—a case study in lateral and vertical diversity. Their lives’ possibilities are interwoven and shaped by the global economy, but in sharply divergent ways. Shared problems require shared action. But to achieve collective agency on the global level, disparate individuals must learn to see themselves (and their daily lives) as fundamentally connected to one another through common global structures, processes, and challenges. Such collective learning has the potential to politicize the world economy and the institutions that govern it. Rather than being treated as immutable, these institutions can and must become the subject of political contestation. Both radically reforming existing institutions and building new ones must be on the agenda. Seeing the world system as malleable goes hand in hand with the quest for globalized political agency, for advancing transformative visions of “another world.”

The roots of the contemporary quest go back to the formation of transnational political associations in the nineteenth century with the burgeoning peace and labor movements. A century later, in the 1960s and 1970s, new movements for gender and racial equality, nuclear disarmament, and environmental justice sparked global organizing and activism. In the 1980s, economic globalization became an era-defining issue. Then, as the walls of the Cold War came tumbling down and the Internet eroded barriers to communication, the concept of global civil society took hold. To this day, civil society carries the banner of transformative hope, expressed through pursuit of peace, justice, democracy, economic well-being, and ecological sustainability.

The growing organization and influence of global civil society can be seen in the human rights movement. For example, an international criminal court was
first proposed in 1872 in response to the atrocities of the Franco-Prussian War. However, the NGO Coalition for an International Criminal Court (ICC), which featured prominent human rights organizations, was not founded until 1995. By the time the Rome Statute was adopted in July 1998, more than 800 organizations had joined the campaign; in the early 2000s, the number was more than one thousand. The ultimate creation of the ICC, though noteworthy, was an achievement tempered by the nonparticipation of China, Russia, and the US, among others, and by accusations, especially by African states, that the court has been guilty of applying double standards. Read more

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